Insurer liable to insured for damages relating to release of pollutants from a pipeline

Insurance law – Liability insurance – Pollution exclusions – Interpretation of policy – Breach of contract; Damages – Failure to mitigate – Duties and liabilities of insurer.

Paramount Resources Ltd. v. Chubb Insurance Company of Canada, [2023] A.J. No. 1164, Alberta Court of King’s Bench, November 8, 2023, J.T. Eamon J.

The insured, an oil and gas company, brought a claim against its insurer which provided pollution and excess insurance following a denial of coverage. The claim related to the release of pollutants from a low vapour pressure pipeline. It was agreed that there was an unexpected and unintentional discharge, release or escape of pollutants into or upon land from the LVP pipeline.

The insurer acknowledged that the leak would have triggered coverage, but coverage was denied on the basis of an exclusion that was triggered if a release was not “detected by any person” within 720 hours of the commencement of the release. The insurer refused to defend the insured in arbitration proceedings and refused to indemnify the insured for the arbitration settlement.

The claim turned on the interpretation of “detected by any person” in the policy. The insured argued that the release was detected within 720 hours of the commencement of the release. The insurer’s position was that the release was not detected within 720 hours and the employees were “blind” to the warning signs that the pipeline was leaking.

The court allowed the insured’s claim. The court held that the leak and release of pollutants was detected by any person within 720 hours. Within that period of time, the employees had identified anomalies in the data, could not explain the anomalies, and were looking for evidence of leaks or other explanations for the data anomalies.

This case was digested by Cameron B. Elder and edited by Steven W. Abramson of Harper Grey LLP and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter.  If you would like to discuss this case further, please feel free to contact them directly at [email protected] or [email protected].